| by May 31, 2017 |
The price of formula milk powder in Singapore have come under heavy scrutiny in recent weeks after it was reported that the average cost of milk powder has gone up by 120% over the past 10 years.
While that is a large increase in cost for Singapore parents to bear, we explain in a previous article on why there are good economic reasons behind why prices of formula milk powder are soaring.
Travelling To Malaysia To Enjoy Lower Price
To deal with high prices, one of the common method that Singapore parents do is to drive in to Malaysia to stock up on formula milk powder which are significantly cheaper.
For example, an 850g of Similac Stage 1 formula milk powder, which costs about S$60 in Singapore, sells for about S$37 in Malaysia. This represents a discount of about 38%.
Why Did Purchasing Price Parity Fail To Hold?
Purchasing Price Parity (PPP) is an economic concept that states that exchange rate should adjust such that identical goods in different countries should cost the same, when expressed in a common currency. This should hold true for all products be it Rolex watches, Magnum ice cream or in our case, formula milk powder.
In reality, we know of course that this is hardly ever the case. Be it consumable goods like ice cream and milk, or luxury goods like Rolex watches, branded handbags or even cars, most things that we buy in Singapore have different cost elsewhere in the world. For some items like formula milk powder, this difference can be significant.
Reasons For Different Prices Of Milk Powder
Here are some reasons why milk powder costs differently in Singapore and Malaysia
#1 It’s Priced To Sell
Marketing practitioners would know that “price” is one of the 4Ps of the traditional marketing mix. Price sets the level for demand, but also signals quality of a product, or lack of.
In our previous article, we wrote about how higher prices have and need to be charged in order for brands to signal that they are of high quality to their customers.
What that means is that whether you are in Singapore or Malaysia, prices of milk powder for “premium” brands like Similac, S26 and Friso will always be higher compared to the non-premium brands available in the country.
For example, a Dumex Dulac Step 1 cost about S$20 for an 800g tin in Singapore. This looks extremely affordable, compared to the S$50 to S$60 you pay for “premium” brands. This adds up to about three times more.
In Malaysia, the same brand costs about RM27, or about S$9. In comparison, the price of a premium milk brand in Malaysia would be about RM90 to RM120. This is also about three times the price.
What we are saying here is that like it or not, price acts as a signal for the manufacturer to tell its customers that it’s a better brand. Priced it cheaply and you may be viewed as an inferior brand. Manufacturers will price their products relative to the entry-level product available in the country. The various prices that you see in different countries, be it Singapore or Malaysia, takes into account people’s willingness to spend on a premium brand.
As a Singaporean, the prices of premium milk powder in Malaysia feel inexpensive because of our exchange rate and the cost we are used to. However, it doesn’t mean it’s cheaper for people in the country. Similar to Singapore, Malaysians also pay about three times more for premium milk compared to the cheaper alternative available in their country.
#2 Different Standards
A common myth that Singaporeans may believe is that milk powder from Malaysia may be “inferior” than those bought in Singapore because they come from different manufacturer. This is mostly untrue.
What many people do not realise is that premium milk brands in Malaysia such as Similac actually imports its supply from countries like Ireland, Spain and yes, even Singapore.
So the irony is that when you travel to Malaysia to buy cheaper milk powder, you might actually be buying a product that was originally produced in Singapore.
#3 Different Taste In A Similar Product
While product in both countries may have similar manufacturers, it will be inaccurate for us to suggest that the product is entirely the same. It’s not.
Manufacturers create slightly different variations of the same products all the time as a way to segment markets. This extends from car manufacturers who may produce different variations of the same car model for different countries, or everyday products such as biscuits and chocolates.
For example, most of us know that Milo bought from Malaysia taste slightly different from Milo bought in Singapore. This doesn’t necessarily make one product better than the other. In this instance, the reasoning is that people in different countries have different taste buds. While that may be true to some extent, we doubt focus groups have been conducted for babies in different get their feedback on the taste. The slight variation in taste may even sometimes be deliberate, ensuring that people (or in the case, parents) in different market buys it from their own local distributors as far as possible. And if taste is different, a baby may reject milk powder from another country thus leaving parents with no choice but to spend more on local milk powder, even if nutrients level are similar.
A similar practise is what used to be done by the DVD industry in the past, where codes are assigned to different DVDs such that it only plays on the DVD player in the region you are in.
Will You Think of Buying Milk Powder In Malaysia?
Now that you know why prices are different, are you more or less inclined to buy milk powder from Malaysia?